The Isocracy Network

If Australia's 2019 Federal election campaign will be remembered by economic historians for anything, it will probably be over a fascinating debate over taxation policy. The governing LNP coalition, after a six-year stint which has witnessed three leadership spills and three different prime ministers, announced a budget just before the election which would include tax cuts, and a promise to return the budge to surplus, which itself is a bit of a sticking point since they have managed to double the net debt in that period. In contrast, the opposition Labor Party has come out with a strong redistributive program, including significant funding for public transport infrastructure, subsidised childcare for low-income earners, extra public school funding, and renewable energy funding, etc. Interestingly, Labor also has announced a budget surplus that's more than twice what the Coalition has promised.

Following from a previous sketch on the ideal size of government [1] the following is an attempt to describe some formative directions towards an ideal determination of government. This exploration is, in part, directly influenced by the previous essay, but also by debates over confederate, federal, and unity forms of governance and the notion of representation, influences from various voting systems, especially proportional representation in election and governance, social choice theory and Arrow's Impossibility Theorem, plus previous reviews of deliberative democracy [2]. Of course, engaging in the questions of what is the ideal determination of government is worth starting from the other direction and specifying what determines the worst government type, a kakistocracy [3], rule by the less competent and less scrupulous. Note that this is not describing the actions, but the process that has led to such a government.

What is the optimal size of government? This is an issue which has interested political scientists, economists, psychologists, anthropologists and more for many years. For some anarchists the ideal size of government is zero; in contrast, the totalitarian perspective argues for a society where the State controls all [1]. It is argued that anarchists sometimes err in a conflation between government and the state [2]. A contemporary quirk is that most contemporary "anarcho-socialist" perspectives argue for the abolition of the state yet for democratic governance of social property, in contrast to the "anarcho-capitalist" perspective, which argues for the abolition of democratic governance of social property in favour of numerous private states.

Starting from an examination of the need for governments of different scope, the following looks at some of the major theories concerning the optimal size of different types of governance, heavily informed from public economic theory. In doing so, it is hoped to overcome some of the shortcomings of theories of this sort, but also to provide some steps towards resolving what are often well-meaning, but extremely flawed, perspectives in political theory and voluntary association.

It cannot be stated more bluntly; in the dry land of Australia, the Murray-Darling Basin is the single most important area of inland water volume in the country. It is the single most important water source to both native faunae and to agriculture. But this summer, it became a major political issue as hundreds of thousands of native fish died and animals were trapped as water sources dried up. The outrage across the country was fast and furious, as it came on the back of years of ongoing complaints of how the Basin has been managed.

The leader of National Party, and Deputy Prime Minister, Michael McCormack argued that it was just an unfortunate result of a drought which is part of being in Australia. This said, at the same time, calling the drought "unprecedented". To that extent he is correct; the five warmest years on record have occurred since 2014, and this is from a government whose inaction on climate change is seemingly indifferent. A Federal government report also lay blame directly on the climatic conditions.

The Essence of Conservatism and of Progressivism

The essence of conservatism is its recognition of the importance of stability, security, and social order. It views revolution and insurrection as bad because these things disrupt social order. During revolutions, people die; and human lives are irreplaceable. The insecurity and instability of revolution disturbs the peace, causes anxiety, and brings suffering and death to many people. Thus, conservatives have very strict criteria for justifying revolution, and they hold that democratic reform is usually preferable to revolution. In a monarchical despotism, revolution may be the only option, but in a democratic society we must consider revolution as a last resort. Conservatism also emphasizes the imperfectability of human nature. Humans are fallible and corruptible. Therefore, we need checks and balances on power. No one individual or faction should ever be given too much unchecked power. Furthermore, conservatism recognizes that existing institutions are the result of social evolution. They reflect the wisdom of our ancestors and, therefore, may contain purposes and functions that are quite needed but not readily apparent to us. We must tread lightly when overhauling existing institutions. Before we engage in any major reform, we must seriously examine what we are overhauling—we must try to determine what the purpose is and what the consequences of overturning it will be. Sometimes it is best to be cautious about overturning existing institutions too quickly, since they may actually serve a necessary function that we are simply unaware of.

The essence of progressivism is the recognition of socioeconomic injustices and the desire to change them. Progressives desire more egalitarian (equalitarian) arrangements because they believe that such arrangements will lead to a happier and more prosperous society. They believe that all people ought to be guaranteed a certain minimum standard of living, so long as this does not deprive others of this same standard. Often, progressives have favored revolution as a means of bringing about these desired social changes. Progressivism recognizes that many human vices stem from social and economic conditions. If you are raised in a society where greed is rewarded and altruism is shunned, then you will be inclined towards vice rather than virtue. If you are so poor that theft has become a mean of survival, then being a law-abiding citizen is not a reasonable path for you. If you are so destitute that you turn to drugs and alcohol as a means of escaping the harsh realities of life, or if you are so oppressed that you turn to drugs and alcohol, then vice is not your fault as much as the fault of the society into which you were born. Thus, social and economic reform is a necessary prerequisite for making better and more virtuous citizens. Progressives also recognize that certain institutions were created in order to advance the cause of certain privileged groups, and some institutions even emerged as a result of ignorance and prejudice. The institution of slavery is such an institution. Such unjust institutions really need to be overturned immediately. (Note that I am using the term “progressive” in a general and loose sense, rather than referring to American Progressivism, which is actually a conservative form of progressivism.)

Money is debt, an IOU. Money is created primarily in two ways (1) government creates it by spending it into existence or (2) banks create it through the credit market by lending it into existence. Government and the central bank have four main monetary policy tools for regulating the supply of money: (1) government spending [expand money supply], (2) taxation [contract money supply], (3) adjust CRR, affecting how much money is lent into existence by changing how much banks are allowed to lend, (4) adjust interest rates, affecting how much money is lent into existence by creating an incentive/disincentive to taking out loans.

Money ought to be a stable medium of exchange and a store of value. It ought not to fluctuate in value very much. The value of a dollar is 1 out of the total money supply, where the total money supply equals the total monetized wealth of the nation (usually measured in GDP). If the money supply stays the same, the value of the dollar will fluctuate with any change in GDP. If the economy is growing and the money supply does not expand, you will have deflation. Money will become more scarce, people won’t be able to buy up all the products on the market, and you’ll end up with a recession. If the economy shrinks and GDP decreases, while money supply remains constant, inflation will occur and the dollar will lose some of its value. If GDP grows and the monetary authorities increase the money supply exactly in proportion to the expansion, then the increase in supply will merely keep the value exactly the same. If GDP goes down, then the monetary authorities would need to contract the money supply to keep the dollar’s value at the same level. They can do this by raising interest rates, raising the required CRR, by increasing taxes, or through any combination of the three.

This post is by no means going to be comprehensive. I am certainly not up to the task of developing a comprehensive theory of the business cycle. That task must be left up to someone else. I just want to point out some of what is right about various theories of the business cycle and how many existing business cycle theories are actually complementary. Recessions do not have a single cause. There are many different factors at play. Various thinkers have focused on various aspects of booms and busts but no one has really zoomed out and taken an aerial photo of the whole thing. I believe that we need to integrate the insights of various economic theorists into one single comprehensive business cycle theory.

Here is a brief outline of some of what I think various economists have gotten right:

As many of you know, the Green New Deal (which I fervently support and never shut up about, even though we're still not sure exactly what it is) has come under fire for allegedly excluding nuclear energy. The original proposal for a GND committee did exclude nuclear by specifying 100% renewable energy, but the current GND resolution says 100% clean, renewable, and net emissions neutral energy, which does allow for nuclear (and CCS, which we'll talk about in a bit). However, Ocasio-Cortez herself opposes nuclear energy, and has come under a lot of fire as a result.

To understand why, we need to understand how the electrical system works. You can think of the electrical system as being made up of two curves: the supply curve and the demand curve. (These are different from the supply and demand curves in microeconomics.) These curves show the amount of energy produced and consumed at each moment of the day. Our demand for electricity is low during the night, rises during the morning, falls some during the afternoon, rises sharply in the evening as people get home from work, and then falls off during the night.

With the 20th century, a new liberalism was becoming prominent. Classical liberals had held that the proper role of government is to protect individual liberty, but they did not support any particular form of government. The new liberals of the 20th century agreed with the classical liberals on the raison d'être or purpose of government, but they also added to this the notion that representative democracy was the form of governance most suited to achieving this goal. Classical liberalism had only stated that maximizing liberty ought to be the purpose of civil society, whereas this new liberalism went further and asserted that democracy is the form of government most suited to pursuing that purpose. The new liberalism promoted liberal democracy as the proper form and function of government. Its proponents believed that democracy and the market economy belong together. They advocated liberalism AND democracy; that's what distinguishes modern liberalisms from classical liberalism.

We are starting to see social democrats grow in popularity. Individuals like Bernie Sanders, Beto O’Rourke, Alexandria Ocasio-Cortez, and Ilhan Omar have become extremely popular. For the most part, their views and policies align with those of many of America’s Founding Fathers, insofar as they advocate progressive taxation and government taking a role in social welfare. While they admire Nordic Model social democracy, they especially look to Franklin Delano Roosevelt’s New Deal as an example of what social democracy ought to look like in America, which means that they depart from European social democrats on things like corporate income taxes (American social democrats usually support high corporate income taxes, whereas European social democrats tend to oppose corporate income tax altogether).

Some of these individuals—Sanders and Ocasio-Cortez in particular—have described themselves as “socialists.” Ignorant conservatives have used this label as grounds for mocking and deriding them. In reality, these new social democrats are just classical republicans, in the tradition of the American Founding Fathers. Previously, I wrote a couple essays about the political and economic ideas of Thomas Jefferson and Thomas Paine. In those essays, I discussed how Jefferson was a critic of wage slavery and wealth inequality, how both Jefferson and Paine opposed what we call "capitalism" today, and how they both advocated progressive taxation as a means of ensuring a more egalitarian distribution of wealth. I also talked about how the Founding Fathers supported a robust welfare state. Even John Adams, the most conservative of the Founding Fathers, supported an early plan for single-payer socialized medicine. The bottom line is that the precedent for everything that these new social democrats are advocating comes more from the American Founding Fathers than from Karl Marx.